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Shares of Impax Laboratories Inc. (IPXL - Snapshot Report), which fell 15.2% immediately after the company announced that the FDA has inspected its Taiwan facility, continued to fall in the subsequent trading session. Shares are down 16.6% since the announcement.

The FDA observed potential problems when it conducted a general Good Manufacturing Practices (GMP) inspection and a Pre-Approval Inspection at its Taiwan facility where the company will manufacture its Parkinson’s disease drug Rytary. The inspection was conducted from Jul 21 to Jul 26, 2014.

The FDA issued Form 483 with 10 inspectional observations which it wants Impax to address. The problems to be addressed involve validation of equipment, testing of samples, rejection of drugs that fail to meet the established specifications, and measures designed to keep microorganisms out of products.

Impax expects to respond to these observations within 15 business days from the receipt of Form 483. Impax is working diligently on the issues noted by the FDA and expects to resolve the matter quickly.

We note that Impax has been hampered by quality control issues since 2011. In May 2011, Impax had received a warning letter from the FDA after an inspection of the company’s facility at Hayward, CA.

In 2012, the FDA conducted a re-inspection of the concerned facility. A satisfactory re-inspection by the FDA is mandatory to close the warning letter. However, the outcome of the re-inspection was not positive and the regulatory body issued a new Form 483 in 2013.

As for the Taiwan facility inspection, the company said it does not know if the outcome of the inspection will affect the FDA’s review of Rytary. In April this year, Impax resubmitted a New Drug Application (NDA) for Rytary with updated safety and stability information. The FDA is expected to come up with a decision on Rytary’s approval status by Oct 9.

The issuance of Form 483 is a major setback for the company. While we have low visibility as to when these issues can be resolved, chances remain high that Rytary’s approval may get delayed.

Impax currently carries a Zacks Rank #3 (Hold). Investors looking for better-ranked stocks in the healthcare sector can consider Mallinckrodt (MNK - Snapshot Report), Allergan Inc. (AGN - Analyst Report) and Dr. Reddy’s Laboratories Ltd. (RDY - Analyst Report). While Mallinckrodt and Allergan carry Zacks Rank #1 (Strong Buy), Dr. Reddy’s Lab is a Zacks Rank #2 (Buy) stock.

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